Adventures in Legal Outsourcing to India and Beyond

June 10, 2011

Will Discovery Reform Derail Legal Process Outsourcing?

The huge cost and burden of discovery abuse is leading yet again to demands for reform, and not only in the US. And the calls for major revision of ediscovery and other rules are not only for the usual reasons. In a bizarre twist, Australia's Attorney-General now has cited legal outsourcing to India as a factor that cries out urgently for change. This is bizarre, because LPO (legal process outsourcing), by increasing speed and lowering costs, actually is part of the solution, not part of the problem. But this latest news does raise an interesting question: If procedural reforms are successful in dramatically reducing the amount of ediscovery and other document production in the US and elsewhere, will this derail the boom in LPO work? The answer is no.

The Wall Street Journal reports today that the Australian Law Reform Commission, with the backing of Attorney-General Robert McClelland, has issued "plans for a major overhaul of civil litigation" that could "slash tens of millions of dollars from the cost of justice":

If implemented, proposals drawn up by the Australian Law Reform Commission would save "millions in just one major case", said Attorney-General Robert McClelland. They could also end what he described as the "farce" that sometimes arises when the process of discovery is taken to extremes in large commercial disputes. "It is almost part of the ritualistic incantation of large litigation," he said. Mr. McClelland said he agreed with the overall direction of the commission's plan, which aims to give judges greater control over the way parties seek documentary evidence from each other during civil disputes.

According the the article, the Commission is proposing the following changes:

Tougher rules governing the use of court-approved "discovery plans" aimed at narrowing the scope of the search for relevant documents.

New training programs for Federal Court judges on e-discovery, which is the technique of finding and retrieving electronically stored information.

Changing the Federal Court rules so judges could use adverse costs orders to encourage a more focused approach to discovery.

Limited use of oral depositions on issues associated with discovery. The commission has proposed that these examinations would only take place with court approval and could concern the existence or location of potentially discoverable documents, and the reasonableness and proportionality of a discovery plan.

More dramatic reforms are being proposed in the United States, where discovery costs have been growing exponentially. These costs amount to a huge "litigation tax" that dries up capital, lowers employment, reduces innovation, pushes many companies into bankrupcty, prevents foreign companies from operating in the US (the most litigation-costly country on earth), and even threatens the preeminence of US securites markets. Discovery costs in the US were approximately $400 million in 2004, but today they amount to billions of dollars per year. This is not even counting the billions that defendants pay in settlements, just to make litigation go away.

Among the changes being urged in the US are the following: (a) requiring courts to consider cost-shifting every time a party makes a demand for electronic discovery, such that the requesting party would have to pay for it, which would defeat the main reason many discovery demands are made: to run up the legal bills of the other side, (b) requiring the loser in any discovery dispute to pay the attorneys' fees and costs of the winning party, and (c) suspending all discovery automatically during the pendency of motions to dismiss, so there would be no discovery in meritless cases.

Calls for discovery reform are not new, but because several previous reforms have failed, even after being implemented, tougher measures like the ones listed above are now being sought. One truly new development is the attempt of Australia's Attorney-General to attack offshore legal outsourcing as if it were part of the problem. As reported in today's Wall Street Journal article:

He said the costs associated with discovery had become so unrealistic that some litigators were outsourcing the process to low-cost centers in India. This threatens legal employment in Australia and potentially erodes the effectiveness of the process. "A lot of the material is sent on a USB drive or emailed to India and you have Indian lawyers who have a limited idea of what is involved in the case sifting through these documents and supposedly finding information of relevance," Mr. McClelland said. "When it gets to that level, it's a farce." Increasingly, this is an item of work that is not being undertaken by Australian lawyers and is being offshored. "It is appropriate that we take stock at this point and just ask, 'Where is all this going?'"

Putting aside the oddity of this government bureaucrat effectively saying that discovery abuse would be fine if Australian lawyers were doing the work, the impending reforms do present the question of what impact they might have on the LPO industry. It is true that the high-quality, efficient document review services provided by such industry leaders as Pangea3, UnitedLex, Integreon, and CPA Global is currently the engine driving most LPO growth. But that is only part of the LPO story, and at some point, it may be considered just a prelude.

In yesterday's lead article in the blog of the Association of Corporate Counsel (ACC), the point is made that "the majority of litigation costs" are not due to discovery, but rather "involve drafting of paperwork and related legal research," and that this "legal work done offshore can be about one-seventh as expensive," such that the implications for growth of LPO from this higher value work "could be huge." The article, aptly titled, "Legal Offshoring Is Not Just for Documents Anymore," is by Kwarma Vanderpuye, Chairperson of the ACC's General Counsel/Chief Legal Officer Practice Group, as well as Senior Vice President and General Counsel of legal outsourcing company SDD Global Solutions. Ms. Vanderpuye reports that LPO offers a legal-landscape-altering solution to the problem of litigation costs:

[C]ompanies are beginning to realize that when it comes to frivolous lawsuits and/or exaggerated damage claims, there is a new, alternative response that could change the legal landscape. Traditionally, the choice has been either (a) an all-too-often pyrrhic litigation battle, in which legal fees end up costing more than a settlement, or (b) an onerously expensive capitulation. Reportedly, there is now a third choice, which sounds like an oxymoron to most in-house lawyers: a cost-effective legal defense.

In conclusion, offshore legal outsourcing is by no means a part of the problem. To the contrary, it is potentially a very big part of the solution, not only to the problem of skyrocketing discovery costs, but also to address the even greater costs of litigation in general. Discovery reform may or may not succeed in reducing the volume and costs of document review. The US "reforms" in 2000 and 2006 did not do so. But in any event, even the strongest of the now-proposed reforms will not eliminate the lion's share of the "litigation tax." For that, LPO companies increasingly will help ease the burden.

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